Oct. 5 (Bloomberg) -- U.S. stocks erased gains, after an
early rally among benchmark indexes, as optimism about an
unexpected drop in the American unemployment rate faded and
Apple Inc. shares slumped.

Apple tumbled 2.1 percent, helping to reverse an early
advance among technology shares. Bank of America Corp. dropped 1
percent after surging as much as 2.6 percent. Zynga Inc. slid 12
percent after cutting its forecast for full-year bookings. Avon
Products Inc. climbed 7.2 percent as the door-to-door cosmetics
seller said Andrea Jung will step down as executive chairman.

The Standard & Poor’s 500 Index fell less than 0.1 percent
to 1,460.93 at 4 p.m. in New York, after climbing as much as 0.7
percent. The index rose 1.4 percent this week. The Dow Jones
Industrial Average added 34.79 points, or 0.3 percent, to
13,610.15, the highest level since December 2007. Volume for
exchange-listed stocks in the U.S. was 5.7 billion shares, or
4.6 percent below the three-month average.

“Today’s trading is a pattern we’ve seen before this week,
with a strong start and then we give up gains later in the
day,” Frederic Dickson, who helps oversee about $32 billion as
chief market strategist at D.A. Davidson & Co. in Lake Oswego,
Oregon, said in a phone interview. “There’s still a lot of the
dark cloud of the European financial situation hanging over the
market, which sets the tone for the short-term intraday
trading.”

The unemployment rate unexpectedly fell to 7.8 percent in
September, the lowest since President Barack Obama took office
in January 2009, as employers took on more part-time workers.
The economy added 114,000 workers, in-line with economists’
estimates, and August’s growth was revised higher by 46,000 jobs
to 142,000.

November Elections

Today’s employment report is the penultimate before the
November elections as Obama and challenger Mitt Romney debate
whose policies would best spur job growth.

“The report is a step in the right direction, but I doubt
the champagne corks are popping at the Federal Reserve,” John
De Clue, the Minneapolis-based global investment strategist at
U.S. Bank Wealth Management, which oversees $113 billion, said
in a telephone interview. “Most market participants are
probably looking at this in the context of the presidential
election rather than in the context of any fundamental change in
the economy because we’re still at an unemployment rate that’s
not making the Fed happy.”

In Europe, Prime Minister Mariano Rajoy said Spain hasn’t
taken a decision on whether to seek a bailout and any decision
will be based on Spaniards’ best interests. Spain needs to
consider all the conditions, Rajoy said at a meeting with other
leaders in Malta today, reiterating the government’s position.

‘Still Assessing’

“It was really started earlier this afternoon when Spain’s
prime minister again reiterated that the country is still
assessing bailout possibilities and that nothing is imminent,”
Ryan Larson, the Chicago-based head of U.S. equity trading at
RBC Global Asset Management (U.S.) Inc., said in an interview.
His firm oversees $250 billion in assets. “Also, Apple
continues to be under pressure and is flirting with key
technical support levels.”

The S&P 500 has rallied 16 percent this year as central
banks from the U.S. to China took steps to stimulate economic
growth. The benchmark index reached the highest level since 2007
last month as the Fed announced a third round of quantitative
easing, saying it will purchase mortgage-backed securities at a
pace of $40 billion per month until labor markets “improve
substantially.”

Apple Tumbles

Apple, the world’s largest company by market value, dropped
2.1 percent to $652.59 today, falling below its average price
from the past 50 days. The decline helped erase an advance for
technology shares in the S&P 500.

Zynga plunged 12 percent to $2.48 as the online-game maker
cut its forecast for full-year bookings, a predictor of sales,
citing lower demand for titles such as “The Ville.”

Bookings this year will be in the range of $1.085 billion
to $1.1 billion, compared with an earlier forecast of $1.15
billion to $1.225 billion, Zynga said after markets closed
yesterday. The San Francisco-based company also wrote down the
value of its acquisition of OMGPop Inc.

Facebook Inc. slipped 4.7 percent to $20.91. Zynga makes
most of its money by selling virtual goods in games played on
Facebook’s social network.

First Solar Inc., the world’s biggest maker of thin-film
panels, lost 11 percent to $20.07 for the biggest drop in the
S&P 500 after an analyst downgraded the company on product-reliability concerns.

Solar Panels

Solar panels produced between October 2008 and June 2009
may have loose core plates on the back, which would affect
wiring and increase the risk of electric shocks and fires, Mark
Bachman, an analyst at Avian Securities Inc. in Boston, said
today in an interview. Bachman downgraded the shares to the
equivalent of sell from buy and removed his 12-month price
target.

Avon Products Inc. climbed 7.2 percent to $17.39. The door-to-door cosmetics seller said Andrea Jung will step down as
executive chairman at the end of the year and will be replaced
by Fred Hassan, currently lead independent director. Avon said
in December that Jung would relinquish the chief executive
officer position amid slumping earnings and a foreign-bribery
investigation. Avon rebuffed a takeover offer from Coty Inc.
earlier this year.

Hedge Funds

For the first time this year, hedge funds are turning away
from a rally in the global stock market. The ratio of bullish to
bearish bets among professional speculators fell last week and
is below historical averages, according to a survey by
International Strategy & Investment Group. The reduction came as
the MSCI All-Country World Index extended its yearly advance to
12 percent and contrasts with January, when managers bought
shares as they rose, data compiled by ISI and Bloomberg show.

Investors’ attention will turn to corporate profits next
week when Alcoa Inc. marks the unofficial start of the earnings
season on Oct. 9, the fifth anniversary of the record highs in
the S&P 500 and Dow. An unbroken streak of S&P 500 profit growth
that spurred the market’s three-year rebound is forecast to end,
with analysts projecting a 1.7 percent decline in earnings. The
growth would last another quarter if not for energy companies,
whose profits are poised to slump the most since 2009.

Income at oil and gas producers will fall 22 percent in the
three months ending in September, the largest decline since
2009, according to more than 1,200 analyst estimates compiled by
Bloomberg. Excluding the retreat, earnings in the benchmark
gauge for U.S. stocks would climb 1.9 percent, the 12th straight
increase, amid gains for banks and computer makers, data show.